that i do believe is very real. i like to say there's always a bull market somewhere. i promise to try to find it just for you on "mad money." i'm jim cramer. see you tomorrow. good evening, everyone. i'm larry kudlow. this is "the kudlow report." tax hikes, tax hikes, and tax hikes. one way or another, that's about all i hear on this fiscal cliff business, and you know what? what about spending cuts which is the true source of the deficit problem along with anemic economic growth. and here's one. we just got confirmation that the latest fiscal numbers from the treasury department show the federal government ran up more red ink in october than it did the year before, and guess what? spending went up double digits from the year before. what a surprise. but the white house got one thing right today. it released a study showing that a massive year-end tax hike

would kill consumer spending by $200 billion, right. so let's not raise taxes. and in addition to all of this, the joint chiefs of staff is apparently drawing up plans to keep 10,000 u.s. troops in afghanistan past the 2014 deadline. this break a president obama promise, but some promises are made to be broken, and i think this is probably a good move. but first up congress back at work tonight after the holiday recess with now just 35 days to go. are we any closer to a tax and fiscal cliff fix? cnbc's own chief washington correspondent john harwood joins us now with all the details. good evening, john. >> reporter: good evening, laurie, and i think we are getting somewhat closer, and the white house would count it as good news that you found common cause with their report on the impact of fiscal spending. let's talk for a moment about what's happened on the fiscal cliff by the numbers since that early constructive meeting with the congressional leaders and

the president. the numbers are all one. there's one month left for these leaders to figure it out. two, 1.4 it is is the amount to be shaved off by gdp and one is the amount of trillions of dollars that democratic aides, senior democratic aides tell me is necessary to get a deal wit end of the year with the remaining 3 trillion of savings coming in the early part of next year, ants finally one is the number of phone calls made over the weekend between president obama and house speaker john boehner so there hasn't been a lot of concrete progress, but there is total progress in terms of the mood that members take into this. over the weekend we heard republican senators, as you alluded to, larry, breaking the so-called grover norquist pledge against raising taxes and white house press secretary jay carney reacted positively. >> some of the comments you mentioned are welcome, and they represent what we hope is a difference in tone and approach

to these problems and a recognition that a balanced approach to deficit reduction is the right approach. it's the one that's most beneficial for our economy. >> reporter: larry, what i would say is tax increases does not necessarily, despite the rhetoric on both sides, and especially from democrats, does not necessarily have to mean increases in tax rates. it is possible, if you look at the estate tax, if you look at the treatment of dividends, capital gains and carried interest and take a look at loopholes and deductions to raise a significant amount of revenue from people at the top without changing the marginal rate, layery. >> very interesting. we're going to have senator tom coburn on that very subject later in the show. many thanks to john harwood coming from washington, d.c. now, with everyone in washington talking tax hikes, whatever happened to spending cuts? that's really my question. spending cuts and limited government and private sector free enterprise and growth. here now is cnbc contributor and

democratic vat gist keith boykin, a former clinton white house aide and best selling author and talk show host larry elder, out with a new took, "dear father, dear son." larry already the show talking about the book. there may be a deal on taxes, i have no idea, but i don't hear any reductions in spending. wasn't $1.2 trillion sequester, larry. that seems to be gone, the across-the-board cuts. i want to ask you do you think it's possible that this whole exercise could wind up enlarging government, increasing the entitlement state and not doing what many of us want it to do? >> let me think about that. i've thought about that. unfortunately, larry, you are right. one of the republican favorite exercise according to my friend tom sowell is running for the himpingts after the election

republicans believe taxes should be raised on the wealthy but they should not be for two reasons. you should ask people what the wealthy pay in taxes. most people have no idea that 1% pays 40% of the taxes. do no warm, hippocratic oath. the cbo says if you raise taxes on the rich people you'll underperform the economy by a point. why do it at all, larry? >> do y do it the all all. the white house put out a study saying if we fall off the fiscal cliff consumers will lose 200 billion worth of sales, maybe income, too. why are we doing this, keith boyakin? >> two things. first of all, part of the reason, in response to layer, why 1% of the top earners pay 40% of the taxes is because they control 42% of all the income and wealth in the country so there's a great deal of income inequality in our country.

we'll debate that larry. but second question, getting back to what you said, laurie kudlow, the white house report didn't say that raising tax on everyone was a problem. it said that raising taxes on the middle class would cause a $200 billion crimp or reduction in consumer spending in 2013. that's the problem. we have agreement. republicans and democrats both agree that we don't want to raise taxes on the middle class. people who are earning less than $250,000 a year so why not come up a solution right now before december to get that done. let's come up with a solution for the alternative minimum tax and put off 29% that we can't resolve and deal with that some other time but let's deal with what we can right now. >> larry elder, look, i might, might buy into this capping deductions, even though it shifts money from private hands to the government, but i might buy into it. i might rise above a perfect flat tax and this one time exception, but larry elder, what i'm not hearing, and it's

driving me crazy is spending reductions, is a share of government that would go from 25% of gdp to let's say 20% of gdp because i believe limited government is pro growth. i follow milton freedman on that, larry elder, and i'm not hearing any such thing. >> and you won't. i live in california. we just now passed a measure that raise the state income taxes to 13.3%, the highest in the nation, and the president of the l.a. city council is going back to the voters and asking for another increase in sales tax. it's never enough. the left never gets enough taxes. we spend more on k-12 than any other country and ask any teacher, educrat if they want more money and they will say less. it's never enough for the left. >> well, you know, larry, i don't know which larry i'm talking about, the fiscal deliver, the whole discussion about the fiscal cliff to me is

a farce and the reason why is because it's based on this notion that somehow too much deficit reduction is a bad thing. you can't have it both ways. you can't say you want to reduce the deficit and that's a priority and on the other hand we have a fiscal cliff that would reduce the deficit and you're opposed to that because you -- you don't want to increase taxes. >> i want to reduce the deficit. you're absolutely wrong. i want to reduce the deficit j why are you afraid the fiscal cliff? >> because larry elder i believe that cutting spending will help grow the economy. i also believe a flat tax will help growth economy, but larry elder, my beef right now is it's all about revenues and tax rates and so forth, and i want lower spending because i think that's progrowth, larry elder. >> less money should be taken from the pockets of the american people, whether you're talking about deductions or loop hole, however you do it. less money should not -- should be taken from the american people, not more, and christiana

roma said raising taxes is contractionary, lowering taxes section pangsry. one more time why do it at all? >> exaccuse me, larry. >> two things. there's a political reason and there's a policy reason. the political reason is we had an election. the american people decided tax rates were going to go up for the top 2% of income earners. the republicans tried the alternative approach, they didn't win. move on. the fife is off -- the philosophical approach, we tried under the bush economy and it didn't help. >> sure it did. >> every single republican under the clinton administration, the economy took off and created 22 million new jobs. don't tell me tax increases will ruin the economy. warren buffett wrote an op-ed, it's a lame outdated discredited argument from the gop. stop repeating the talking

points. >> larry elder, i'll give you the last word. >> may i respond. the clinton income tax hikes underproduced revenue based upon their projections. they got in less money than they thought. when clinton lowered capital gains they got in far more revenue than they thought. cutting taxes is expansionary and raising taxes is contractionary. >> this discussion still comes down to spending. a man in washington who has never wavered on this issue is senator tom coburn and in 20 minutes mr. coburn will join to us vent his frustrations about the fiscal cliff and the one-sided discussion and attention on revenues alone which is driving me crazy. politics aside, the question is what happens to the economy and your money if we go over the cliff or just kick the can down the road? you're going to want to hear what our next guest's

predictions are because he's a former undersecretary of the treasury and he's a serious guy. later on, didn't president obama promise to pull out our troops out of afghanistan? now he's changing his mind. we're going look at what that means. i think he's got it right this time, and don't forget, folks, free market capitalism, free market capitalism, which is not out of control spending, it is the best path to prosperity. i'm larry kudlow. "the kudlow report" coming right back. from investing for the first time...

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we're going to do more on the fiscal cliff wisdom nating markets and the economy. this time we have a former treasury undersecretary who actually managed the nation's debt for a bunch of years and ran the trading desks at the federal reserve bank of new york. joining me is peter fisher, senior directing manager and head of blackare being's fixed income group. welcome back, peter. i read your notes, and you seemed very pegs mystic, i think, maybe about getting off the fiscal cliff but certainly the market impact of the cliff. why are you so worried? >> well, we face much too high a risk if they kick the can down the road again, 60 days, 90 days, six months, actually don't solve anything. if they do that and just leave us with another cliff a few

months later, if they leave us with that, business fixed investment is going nowhere. business confidence is going nowhere. >> already falling. business investment is actually falling. >> yes, but if we give them -- if we make the business community think we're facing another three or six monies of this fiscal cliff stuff it will completely evaporate and household markets will evaporate, and the markets will spell that. those odds are higher than we should put up with. >> i don't necessarily disagree but the volatility index, the vix index for stocks and gold are both very low. though are the so-called fear indexes. why do you reckon with all the fiscal risks out there that the fear indexes are in fact so low? >> two reasons. one, the fed is suppressing a lot of vol with qe so the central banks the world over are suppressing vol. sec, the political risks are not reflected in vols.

they are continuity risks, will they behave well or badly? i don't want to be all gloomy because we do face a risk that they pull something together. let's hope it's balanced, between taxes and spending. but if they do that, then the markets could have a big rally here, so we're all sitting on our hands not neglect which way it's going to go. >> but as larry elder just mentioned, it's a point that i've made. if you're raising the capital gains tax, going to raise dividend tax and raise the intear tans tax, some people may call this balanced. i would say that's a real blow to investors and that could do a lot of damage to stocks, i mean, especially capital gains. >> yes, it could, but right now we're having a hit to confidence from the risk premium, the uncertainty that creeps in, and we're going to get a bit of a raly if they just get rid of this uncertainty, which would be a big plus for us, even if we just don't fix that many things as well as you and i would like, if we can get the monkey off our back. that would be a big improvement. look what a big improvement we

got last year in europe when draghi laid out a plan, a 20% rally in equities just for clarity how they would approach it. >> a good point. >> would be nice if we could get the clarity on this side of the atlantic. >> i stand semi chastened. the ceos met with president obama last week before thanksgiving. they said put the debt ceiling into this, put the debt limit, you're going to raise the debt limit and get that done as part of this deal. i'm not hearing that, and i want to get your take on it. should they put the debt ceiling increase into this deal, get it out of the way so moody's and s&p won't downgrade us again? >> of course they should. a mistake not to do that in 2010 when they extended the tax cuts for two years. you cut your revenues but you don't raise your borrowing limit. that was a mistake. of course, we should do that again and get it out of the way. >> do you think that if we don't

we're going to take more credit downgrades? everybody is talking about moody's because they can't do it the last time. s&p is still out there. do you think there's a risk of a credit downgrade which really hurt the stock market, the stock market last year? >> yeah. i think there is, but i would hope it's attached more to the balance, whether we get a balance of taxes and revenues, revenues and spending cuts. i think if -- if the rating agencies see some real substance there, if wempro our fiscal future for the next ten years that's the best way to avoid a downgrade. if we don't see any of that, and we've got a debt ceiling increase, i'm not sure that's going to help much from their point of view. >> you're a senior guy at the federal reserve bank of new york. if stock markets fall and say the market goes into december down 1,000 points, down 15 hundred poin 00

points, do you think the fed will step in with a safety net and buy up more reserves? >> i think that might add to the wrong kind of volatility but they do have the meeting before we're likely to settle the fiscal cliff in mid-december and that puts the fed in a difficult spot. they will have to decide whether they are announcing the end of operation twist they are selling the short end and buying the long end which is supposed to expire at the end of the year. now, i think the original plan back in september was to sort of wait and come back in the first quarter and see whether they will do more, but they may have to hint at something at their meeting upcoming which makes me a little nervous. >> december 15, 16. >> yeah. >> they are not going to stop operations. they are going to keep buying bonds. >> if they stop buying bonds the market will look at that and go oh, my god, they see the worst of it and have inside information. >> so i think they will probably just do steady as she goes. i think they might not want to distract attention on to themselves from the fiscal cliff

by doing something we're not expecting but i think we probably have to carry. >> there is some hope. i heard at the beginning of this conversation, because i read your note cards, and you know i always listen to you. you're saying there is some potential for better news. >> i think actually we ought to be careful. i don't think we're going to get the good outcome is going to be a bill signed with all the details, is dotted and ts crossed. if they came up with a framework by december 20th that said this is how we're going to do it, agreed to this, we'll vote now to avoid the cliff. >> some good. >> that would be a good outcome. >> peter fisher, pleasure to see i. now folks, warren buff tet at it again. pushing his same old millionaire's tax, but we have our own expert on millionaires and billionaires of the his name is robert frank, and he's found something that buffet either doesn't know or doesn't want you to know. that is next up on "kudlow." two years ago, the people of bp made a commitment to the gulf.

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pay less than the rest of america saying half of america's top 400 earners pay a rate 20%, far less than the official top rate of 35%. now the buffet rule would restore fairness. it would make those making $1 million or more pay at least 30%, but what the buffet rule fails to mention is that the rich already pay a higher rate than the rest of the population when you look nationally. take a look. the effective tax rate, that's the amount that people actually pay, averages 20.4% for people who make $1 million or more. people making 30,000 to 50,000 pay 4.8% and those that make 50,000 to 100,000 pay 7.8. the irs says the more you make the higher your effective tax rate. that sounds obvious but the buffet tax rate implies the opposite, no including state, payroll and there are some cases where a super rich guy pays a lower rate than the secretary.

but those are the outliers. only a third of million dollar earners would pay the buffet tax since most of them already pay 30%. i'm not saying the buffet rule is a bad idea but its value and the problem that it solves are largely symbolic. >> robert, great data and disprove a lot of myths and sorry that mr. buffet doesn't put it in there or whoever does his ghost writing for hi. i want to add a couple of quick points to this. first of all, the capital gains tax is the reason why mr. buffet pays such a low rate. what i would like to know is would he give up the charitable deduction, all of washington is talking about capping deductions to 30,000, 40,000, that's where mr. buffet's gains go, not to the tax man but tax-free charitable deductions. has anyone ever asked him that? they haven't. that's a great question. giving more than 95% of his wealth. >> tax-free. >> it's tax-free. >> hand this really is a backdoor way at getting rid of

the capital gains, you know, special treatment there. >> the last one, a lot of people have suggested, look, supply siders like arthur laugher have suggested, what you should do and the capital gains tax is tax the person's wealth, not just his gain, but his wealth, and i wonder if mr. buffet would agree that his wealth should be taxed at the capital gains tax rate of 30%. >> never seen him asked that question, but you and i both know what the response won. the other important point is this raises 5 billion to 15 billion a year, a very symbolic amount of money. >> seems like an awkward anti-investment approach to me. i don't want to malign mr. buffet who is a brilliant man and a good man but i would like to ask him those questions. robert frank, thank you ever so much. >> now, remember the complete pullout from afghanistan that president obama boasted during the campaign. not so fast. today we learn the military is drawing up plans to keep up to 10,000 troops in afghanistan

maybe indefinitely, in view of the difficulties in the theater. that may be a very wise decision. it's not expensive. it may help the men there. it may help the whole afghan story. anyway, we're going to visit with former assistant secretary of defense byng west in 15 minutes to parse through it. for 15 years the federal gas tax has been 18.4 cents a gallon, good. some people now in industry groups, they want to raise it as part of the fiscal cliff negotiation. that is a bad idea. first of all, we don't need another tax, period. it's just going to slow down the economy and damage consumers. second of all, it shut should be a state and local decision, not a federal decision. this is so important. yeah, bridges need to be upgraded and so forth, but, again, this is no time to burden motorists with higher gasoline prices that have more than doubled in the last four years and no time to burden consumers with another tax burden.

now, there's one man in washington who is a true leader in the fight against out-of-control spending. what does they think about where the fiscal cliff talks are going? can he possibly be happy with all this talk about revenues and nothing about making spending cuts? we welcome back senator tom coburn about to join us next up on "kudlow." tomorrow is the city is rising above the stalled economy. top companies that have outperformed the s&p. that's tomorrow on cnbc.

welcome back to "the kudlow report." i'm larry kudlow. in this half hour let's take an optimistic view of consumer spending and retail sales. pretty good over the thanksgiving weekend, but now comes the washington challenge which may again ride roughshod over american optimism. that is later. >> but first up, just 35 days until the nation's economy plummets off the tax and fiscal cliff. is congress any closer to finding common ground? let's get right to our special guest, oklahoma republican senator tom coburn. he's the author of "the debt bomb." welcome back, senator coburn. you snow, senator, is it possible, and this is a big question here at cnbc, is it

possible to rise above the partisanship, number one, and number two, this is my own kibbitz, to produce a deal that would help the country and help the country grow? is a good deal, not a bad deal? >> no, i think that's possible. larry, the one thing that all the media today, i've done a lot of interviews and all last week. they are wanting to talk about taxes. you can't raise taxes big enough to solve this problem. i don't care where you go to get them. if you don't significantly structurally reform entitlements, you can't fix this problem. and so with the news media all centered on tax increases rather than the real problem, because you -- you can take over 100,000 a year and take everything that they made over that and confiscate it all, you're not going to come close to solving this problem, so we ought to be talking about the realistic goals of the president, what is your plan for entitlement

reform? boehner has said we'll put revenues on the table. how we do it is important in terms of getting pro-growth tax reform, but you've got to reform entitlements, and if you don't do that, you haven't solved the problem, and it doesn't matter how good a pro-growth tax reform we get. if you don't have significant entitlement reform, we're not going to solve the problem and we'll be right back here. >> totally agree with you on entitlement reform. from what i gather senate democrats, the leadership, they are opposed to entitlement reform and opposed to any reduction in medicare and social security, but i want to ask you about another spending issue. originally, initially, we were supposed to have an across-the-board budget cut called the sequester of $1.2 trillion over ten years. where's that's gone? that's about $100 billion a year. i'd say that would be a pretty good down payment on deficits and debt. what is getting my goat. everybody is talking revenues. what happened to the skywester? >> that's right, and there's

$750 billion yet to go on that based on what we've done so far. and i think the president will have a tough time getting through the republican house and republicans in the senate if in fact you don't have equivalent numbers to that in terms of the discretionary cuts? sequester is not a good idea, but sequester's a great idea versus no spending cuts whatsoever. >> right, there you go. originally some people were say saying 3 to 4-1, spending cuts to revenue increases. $1 of spending doubts $5 of revenue increases, they got the whole thing backwards. basically what i wanted to ask you on this is how can anybody talk about raising taxes. i don't care how, limiting dedeckses, whatever. how can anybody talk about the "t" word until they have milked every bit of spending cuts possible. i mean, you've written booedles

and bundles of stuff on it that they won't touch. it seems to me until that spending rock is bled dry we should never talk about taxes. >> that's a whole different issue, larry. career politicians are very verbose when it comes to say they are for cutting spending. they are very specific saying what programs they want to fund but there's hardly a one that talks about what they want to cut because the conflict is staying in office versus doing what's best for the country and we find ourselves with a dilemma, sometimes with republicans and democrats both, that they won't make the hard choices for the betterment of the country. they will make the hard choices only if it benefits their political careers, so we -- we've lived the last 30 years off the next 30. the bill's due. we can't get another credit card. the bill is due. now, how do we get this solved? >> well, you're looking for common ground, are you not?

>> i am, i am, and i'm all -- i'm okay with revenue increases as long as you don't destroy our ability to reform the tax code which will stimulate additional growth, which will stimulate additional revenues. >> right. >> but raising the rates is a political game. the fact is we've got $30 billion a year in the tax code that the very, very wealthy take advantage of. we can do a whole lot with that by reforming the tax code that would form -- cause the formation of greater capital, greater investment, greater economic growth and ultimately greater revenues, and what i'm worried about is the short-term thinkers in washington would rather have a little bit now. >> i'm reading everywhere that senator harry reid wants to severely curtail and restrain the my in the's power to flu

filibuster. what can you tell us about that? >> i would just tell you the senate -- when i got here the senate worked very well. everybody could offer amendments. they were respectful of the amendments they offered. they knew if they took advantage of it, there would be consequences in terms of people not voting for their amendments. we've lost quality leadership in the senate, and harry reid's answer to that is change the rules, and if he changes the rules, he will have totally defeated our founder's purpose of creating a senate where minority rights are protected, and -- and what that will do is that will create two houses of congress rather than a house and a senate, and it just says majority rules with an iron fist. >> so you're going to fight it. >> well, i would tell you, my hope would be that if he carries out his threat, the senate will be shut down until he restores the rights of the minority because that's what our founders

did. the reason they did a bicameral legislature and set it up to protect minority rights in the senate is so that it would force compromise, and what he's saying is i don't have the skills to get compromise so, therefore, it's either my way or the highway. >> all right. we've got to leave it there. senator coburn, good luck on everything. >> thank you, god bless you, larry. >> good block on the filibuster and the whole fiscal cliff. >> you bet. >> just to add on to senator coburn's remarks my version of rise above starts with spending cuts including entitlements which are the real problem. you know, at least 1.2 trillion of spending cuts, at least. that was the original across-the-board budget cut sequester, at least that 1 trillion or more. then on to entitlement reform to stop us from going broke and bruptd in the next 20 years which is where we're headed. here's know concession, my concession to free market prince pentagons. i can accept a cap on high-end

deductions to raise revenues, it's not a real flat tax reform which would lower the rates which i would prefer, but can i live with the limited deduction thing with this one caveat. every single dollar of revenue increase must be devoted to deficit reduction and not higher spending. limited government and lower spending is itself a pro-growth tax cut so that's my caveat. you want to raise revenues, limit it to deficit reduction. do not permit it to go for higher spending. my free market caveat concession. anyway, president obama promised to pull out all the troops from afghanistan by 2014 and now the military is proposing a different course. keep 10,000 troops in theater for a longer period of time. this has some important political and financial implications. we will explain and explore next up. tdd#: 1-800-345-2550 let's talk about low-cost investing.

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debates, but are afghans capable of defending themselves like he said? maybe we do need a new plan. here to tell susformer assistant secretary of state bing west who is co-author of a new book "into the fire." thank you. i don't hold it against president obama at all if he wants to switch dpeers and listen to the joint chiefs who want 10,000 troops to stay in afghanistan beyond 2014. what is your view of this? >> well, i think it's perfectly sensib sensible. the president is saying we have 70,000 troops there now. the military is saying, circumstances we can't get out entirely so let's over the next two years bring it down to about 10,000 troops and that will be about $10 billion at the end of 2014. >> so it's not really that expensive. you do think it's the prudent move. i would suspect he might get bipartisan support for this and perhaps should get bipartisan support. >> i agree with you. the issue isn't going to be here

in the united states. in fact, the american public have already discounted the war. they don't think we're fighting anymore. we're getting ow. the real issue is going to be trying to deal with the government of afghanistan and agree to a long-term security relationship where we can stay there. i mean, president karzai is not a reliable strategic partner, and the government of afghanistan has shown that it's pretty feckless, so we saw what happened in iraq trying to deal with prime minister maliki. we might be facing the same kind of problem with president karzai. >> no. a troops is going to solve that. >> no. >> let me move on to something else. over the weekend senator john mccain really criticized egyptian president morsi, really, really criticized him and basically said he's taking undemocratic dictatorial moves. he's esurping the authority of his own judiciary and this is

not somebody we shouldn't rebuke, somebody we should be very critical of. what's your thought with mccain and morsi? >> well, look what happened. morsi came out of the gaza/israeli/hamas battle and his stock was improving so he overstepped himself, but what surprised me was the egyptian people and the high court reprimanded him, and they said we're not going to take this from you, and he's now backing off. so i agree with senator mccain, but i'm also encouraged a little bit that the -- that the egyptian people stood up to their own prime minister and said you're going too far. >> what does it mean? mean, how do you ignore or just take away the power of your own judiciary? i mean, that's really at the heart of the egyptian separation of powers. it's at the heart of the egyptian democracy. how farhink morsi is going to take this? i mean, is he going to give himself dictatorial powers? >> well, manifestly he tried. now the question is it's not so much the justices he has to

worry about. what happens if he has riots in the street again, this time against him? and what happens if the economy continues to disintegrate? then what does he do? try to pull a chavez in venezuela and keep declaring that he's all in favor of everything when we're the ones giving him billions of dollars each year? we still have a lot of leverage over morsi, and the egyptian public has a lot of leverage over him, so i think we can come out of this okay. >> i just thought it was somewhat odd that here's president obama working with president morsi to get a truce, a peace truce with israel and hamas, okay? then the next thing we hear is he's giving himself, morsi that is, he's giving himself all these new powers and knocking down the judiciary which kind of, you know, smacks of authoritarianism. i thought the timing was very unfortunate, and i think a lot of people in the senate are

going to make a big deal in the senate about it. >> clearly they don't have to make a big deal because morsi has already recognized he overstepped himself and is now pulling back. i don't know what the longer term will be, but it did show that he's a new power that has to be reckoned with in the israeli/arab dynamic in a way that as we're falling back, i mean, president obama has, unfortunately, lost credibility. morsi had already cut this deal for the cease-fire and he waited until secretary of state was there because no one wanted to embarrass the united states, but we weren't pivotal to it, so president obama has -- has an uphill climb ahead of him if he's going to get back in a position of power in the israeli/arab dynamic. >> all right. we'll leave it there. many things, former secretary of defense bing west, appreciate it. >> thank you, larry. can investors make money in this market between now and the end of the year? we'll ask two market experts who

have their eye on wall street, main street and most of all washington, d.c. we'll be right back.

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welcome back to "the kudlow report." by almost every count the unofficial kickoff to the holiday season was a positive one. the national retail federation says 139 million consumers shoptd in stores or online spending an average of $423 a person. total sales, $59 billion. that's up 13% from last year. what did they buy?

apparel was the number one item. department stores fared the best, followed by discounters and then electronic stores. when it comes to online, today is the big day. it's cyber monday. expectations are for a total of $1.5 billion to $2 billion to be spent online. ibm says sales are up 27% for the day, and it's not over yet. what does it mean for the rest of the holiday season in the national retail federation matt shea says if congress cannot come to a resolution on the fiscal cliff their estimates could be revised downward or go upward if we come to some kind of resolution before christmas. larry? >> courtney reagan, appreciate it. so thanksgiving sales look pretty good. what about the tax cliff and a whacked out congress that is totally unpredicted? who can prophesy the future? the author of "get rich from

obama" joins us. rebecca, i want to ask you, i'm kind of looking for optimism because i think the consumer spending numbers are pretty good. housing numbers are improving, but you do have this whacked out fiscal cliff. where do you stand on all of this? >> i think washington has the ability to give this economy momentum, new home sales are ticking higher and consumer confidence now at a five-year high, kind of amazing, so we have everything in place. just need to get rid of this congressional question mark overhanging everything, and then i think we could actually have an okay year next year. >> are you worried about business. the starry last week in "the journal" is how business investment was collapsing and capital goods have been falling and we're going to get a capital goods/durable goods report out tomorrow. if business doesn't invest they won't hire jobs and if they don't hire new jobs they won't have income to spend. what's your quick thought on that? >> i agree. it's a chicken and an egg. if the consumer has more

confidence in their spending then the companies producing the goods need the higher demand and at the same time if you don't have the businesses spending, if you don't have that cap "x" going on, then that doesn't have the trickle down so we need both legs of the stool to hopefully balance ourselves. i think if we can get clarify around the fiscal cliff, at year end or early next year, even if taxes are going up, i think that that can help break this jam. >> as long as we don't go from 35 to 70. >> might as well move to france. >> i usually do. bill baldwin, welcome back. so, i ask, how do you make money under obama. you're very confident about this cover story, how do you make money under obama. >> to give you good news and bad news. the good news is if you're young and invest for the long run, lake a 40-year investment horizon stocks are a great place to be. bonds are a terrible place to be with treasuries paying less than the inflation rate. that's a moderately optimistic view of things, but in terms of

clifrks i see a cliff states are going over, some states. states that i call death spiral states. >> california. >> california. >> california is at the top of the list. >> where else? >> i love this. >> illinois, new york, some smaller states like new mexico. this is what's going on in the states. there are 11 of them on our list of death spirals where you see the number of people dependant on government and the number of people contributing to it and that cross over point is very dangerous. >> regarding stocks, in other words, do you stay away from corporations, domiciled in the death spiral states, does it matter nowadays in the global economy? no, everybody global indicator is important. >> it's very easy to take your comments but to get too carried away on the municipal bonds.

you immediate to be conservative on the bonds. >> what happens if they cap the tax-free bond deduction and put a cap on it? >> it could happen. >> seriously. >> could go from a 35% exception to a 28% exemption. you would get a knee neck selloff in the market, but i think that people still want something, and the yields in some of these bonds are still attractive relatively speaking. >> give me a stock or two. >> up of my favorite bears is jim grant and one of his favorite bold plays is to buy stocks and insurance companies because they will do well when the federal reserve stps stop stepping on their next. >> in my lifetime. >> he likes metlife. >> we've been focused on yield. we have an the u.n. weight to equities. most of the equity exposure right now is outside of america. that's been a good thing for us since july and then we have an

overweight to extend fixed economic and credit. looking at emerging market debt. watching carefully and still happy to own high yield debt and mortgage-backed securities. >> this is a serious question. we had peter fisher on the show, former undersecretary who said, you know, they just might do the right thing. either online or got your "wall street journal" in hand. what if they do the right thing. jeremy segal says stocks are going to 15,000 and 17,000. is that seriously possible? >> look, you have very little liquidity at year end, right, so there's in the a lot of volume in the markets so things can move much more. it's exaggerated. if we get a credible bipartisan deal december 15th you're going to have a huge relief rally into year end. >> 15,000, mr. baldwin? >> not right away. stocks are slightly overpriced. like them for 40 years, not sure about four months. >> good stuff. rebecca patterson and william baldwin, we appreciate it very much.

that's it for tonight's show. thanks for watching. you know what, folks? don't give up all hope. i'm certainly not. i'm listening to peter fisher who told us earlier in this show he knows a thing or two. it is possible. you might get something good out of washington, even if it's quasi good, that would be better than nothing. i'm larry kudlow. we will see you tomorrow night. two years ago, the people of bp made a commitment to the gulf. bp has paid over twenty-three billion dollars to help those affected and to cover cleanup costs. today, the beaches and gulf are open, and many areas are reporting their best tourism seasons in years. and bp's also committed to america. we support nearly 250,000 jobs

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